Payout ratio is a measure of what proportion of total earnings a company pays out in dividends. It is calculated by dividing the amount of money paid out as dividends by the total earnings of the company. It is the inverse of the dividend cover.

For example, suppose the company XYZ has earnings of $150000000 and pays out $20000000 as dividends:
	Payout Ratio = Dividends / Total Earnings
	             = $20000000 / $150000000
	             = 0.1333
	             = 13.33%
A company with a high payout ratio can be considered an "income investment". A company with a low payout ratio would probably be a "growth investment", because if the company invests the retained earnings well, the share price will go up as the shareholders equity goes up.

Log in or registerto write something here or to contact authors.